Written by Malik Corbett
This week is a big one for global markets. The world’s top government officials, business leaders and academics all descend upon Davos, Switzerland for the World Economic Forum 2020 or WEF20. Furthermore, the earning season continues with Netflix, IBM, Intel and Johnson & Johnson reporting this week. While the U.S. was celebrating the Martin Luther King, Jr holiday on Monday, some good news for the global economy came out of Davos, French president Emmanuel Macron said that there was a breakthrough in talks between the U.S. and France over the proposed digital tax on American companies such as Alphabet and Amazon. This is good news because it is a de-escalation of tensions that have been building up between the U.S. and its closest allies in Europe. However mistrust and tension is still brewing and will unlikely get resolved at Davos or any time soon.
“Europe can offer an alternative to the US and Chinese approach to data. “I firmly believe that personal data does not belong to the state or to companies,” she says. “It must be ensured that the individual has sovereignty over their own data and can decide with whom and for what purpose they share it.”~ Angela Merkel interview with the Financial Times
A New World Order is being Shaped
The current level of protectionism has not been seen since the early 1900’s. In addition to the trade war with China, the U.S. has engaged in a trade dispute with the European Union which could lead to a full out trade war with our biggest and most important ally and trading partner.
Data and the technologies that process it are critical for a country’s global competitiveness. It is quite clear that the world is no longer willing to concede technological dominance to America. We are beginning to see the development of three (3) competing economic and technological systems:
- The American System
- The European System
- The Chinese System
Each competing system comes with its own set of advantages and disadvantages which I will describe in another Mining Bytes post. However, what’s important to take away as an investor should be that global competition is unlikely to cool down. In fact, the competition has become so intense that many people are beginning to question globalism, even capitalism. Which is alarming to many of the elites who have benefited from globalization or at least an American dominated form of globalism which has shaped the world since WWII. For now, there seems to be a truce in the U.S. / China trade war, although time will tell if the agreement will hold up. Chances that the U.S. and China will reach a Phase 2 is unlikely as the chances for China to change their economic model which put them at the heels of the number 1 economy in the world is improbable.
The Rise of Protectionism
The rise of populism is leading countries around the world to implement protectionist policies. Examples can be seen with the United States, Mexico, Canada Agreement or USMCA which will replace the previous trade agreement between the countries: NAFTA. The USMCA is a more protectionist agreement and is likely to cause a more protectionist reaction from the rest of the world.
What’s in the Agreement?
In the USMCA the three countries agree that 75% of vehicle parts be made in either the U.S., Mexico or Canada, that is up from the current 62.5% rule of the old NAFTA agreement. I am sure China and Germany are not happy that the USMCA will cut off their auto manufacturing industry from the 2nd largest market in the world behind China… Furthermore, the USMCA introduces a major win for American technology companies. The new trade agreement introduces a digital rule that provides sweeping new benefits that includes U.S. companies not having to store their data on in-country servers in Canada and Mexico. This is huge for American companies because data is equivalent to oil in the digital era, giving American tech firms sovereignty over their data will have major implications as it relates to global tech competition between the big three systems mentioned above.
As dark clouds continue to build up around the global macroeconomic conditions, markets are expected to experience a volatile year. Volatility in the equity and bond markets could prove beneficial to digital asset investors, especially if the correlation between the BTC and GLD persist into 2020. Furthermore, it’s quite clear that central banks around the world are in an easing cycle which is going to put more pressure on low rates and investors chasing yields. As interest rates hit zero or below, investors are willing to invest in more riskier assets for yield, which could make crypto an attractive asset in 2020 and beyond. Time will tell.